The definition of affiliate marketing is a marketing model where an online retailer pays a third-party website a commission each time the website’s referrals generate traffic or sales for the retailer. The third-party is the affiliate, and the commission provides an incentive for the website to promote the products or services offered by the retailer.
What are affiliate marketing tools? In most cases, the affiliate displays banner ads, text ads, articles, videos, or images from the retailer on their website. When a customer clicks on the affiliate link, it takes them to the retailer’s e-commerce site.
There are several ways to pay commissions:
The company then can track the links and use analytics to confirm how many clicks converted to the desired result.
One important caveat is that the Federal Trade Commission requires affiliate marketers to disclose their relationship to the retailer clearly and conspicuously on their site.
There are three main business models for affiliate marketing, meaning there are three levels of involvement an affiliate can have with the retailer’s product or service.
In this model the affiliate has no expertise on the product or service they are promoting. They haven’t used the product and don’t focus on that particular business area.
Related affiliates are somehow related to the niche audience for the particular product or service but haven’t necessarily used the product or service. Influencers often fall into this category because they have a large following in a particular area such as fashion or electronics.
Affiliate marketers in an involved model have tried the product or service and rely on their reputation in that area to make sales. They offer detailed reviews about how it works, and their audience trusts information they relay. Bloggers sometimes fall into this category.
The advantages of affiliate marketing benefit the business owner and the affiliate. The retailer gains:
This can be a great option for a small business without a significant advertising budget. Meanwhile, the affiliate obtains a way to generate income with little to no effort required.
Particularly when commissions are earned per click, affiliates may defraud retailers by employing bots and other tools to generate a large number of clicks. A retailer also loses some control over how their ads are displayed and what content surrounds them.
For their part, affiliates can run into liability issues if they use copyrighted images without the retailer’s permission.
Affiliate marketing offers an easy and affordable way for a sole proprietor, limited liability company, or corporation to advertise products or services. Paying a small commission to affiliates who link to your e-commerce sites can yield increased sales and brand recognition.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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